Our defect liability period
is not good enough
25/11/1996 THE STAR.
SOME builders were surprised that Malaysia's defect liability period only
extends up to 18 months.
That may be a long haul for some of our Malaysian developers but "not good
enough" for several foreign builders attending the recent 7th international
housing and home warranty conference in Melbourne.
Not only do some countries have home warranty for several years but house
buyers have the assurance that their builder take up a warranty insurance
to back their obligation.
Home warranty insurance is so developed in some countries that some believe
the best consumer protection in the world when compared to any other many
product.
This is because the warranted new home product is considered less of a risk
for purchasers, hence enhancing its value. With consumer confidence, builders
are also able to market their
products more effectively.
In some countries, builders are required by law to sign a home warranty agreement
with purchasers while in other cases it is voluntary.
The home warranty market is also becoming more competitive and builders can
shop around for insurance coverage.
Home warranty insurance is not as simple as it seems. It entails a spectrum
of issues from effective assessment and rating of builders in terms of financial
viability and quality performance to competition amongst providers of such
insurance programmes.
For instance, in Australia, some insurance companies give discounts on premiums
to builders who meet criteria set by insurers. In certain states, any building
works over A$5,000 (RM10,000) be covered by a warranty insurance.
Until about a year ago, states along Australia's eastern seaboard Victoria,
New South Wales and Queensland all operated government warranty programmes
from which private providers
were excluded.
However, last May, Victoria privatised the provision of warranty insurance
and opened up the market to free enterprise. Five competitors emerged on the
opening date and there are now
about approved insurers.
According to Home Owners Warranty Ltd Australia managing director Don Kennett,
New South Wales is about to introduce legislation in its parliament to privatise
warranty insurance sometime in March or April next year.
Kennett said the Queensland state government was also considering a similar
move to privatise the home warranty insurance and Western Australia would
make home warranty insurance compulsory from Jan 1 next year.
He said the aim of insurers giving discounts on premiums to builders was to
encourage builders to produce defect free housing and to improve their day
to day relationships with their client (the consumer).
"This would help the industry achieve a high level of self regulation and
enhance its credibility in the public eye," Kennett said.
He said a number of builder liquidation and bankruptcies had occurred since
the Australian housing market started to seriously take a downturn two years
ago.
"Downturns and recessions place additional responsibility on warranty managers
to exercise constant care and alertness in order to continue to provide effective
management control to minimise risk," he added.
Home Owners Warranty Ltd (HOW) manager (Victoria) David Turner said HOW, a
subsidiary of the Housing Industry Association of Australia (HIA), had been
operating for nearly 20 years but only started business in Victoria in May
this year.
However, it has cornered about 65 per cent of the business in Victoria.
Turner said the Domestic Building Contracts and Tribunal Act 1995 in Victoria
was quite a powerful legislation as it clearly stated that builders had to
be registered before they could obtain warranty insurance.
The registration of a recalcitrant builder can be suspended which means that
the builder may not get warranty insurance and this would affect his business.
"We also cover insolvency against guarantee to the value of A$100 A$100,000
(RM200,000) per case," Turner said, adding the builder must contract a statutory
warranty which had to be
backed by an insurer.
"If a builder defaults, the insurance company will back up the statutory warranty
and ensure that the consumer is protected but the insurance company will take
action against the builder," he said.
HIA chief executive (Victoria Tasmania division) Carolyn Lloyd said the home
warranty system ensured that if something went wrong in the building process
or if there was a defect, the builder would have to fix the problem.
The system operates under the housing ministry which regulates the builders.
Lloyd said HOW had introduced a builder rating system which worked on quite
similar lines as the no claim bonus of a motor insurance where a builder might
get some incentives if there were no claims against it.
British National House Building Council deputy chief executive Mike Hall said
the British warranty programme, set up 60 years ago by a group of leading
builders, was aimed at enforcing minimum standards.
"It had to provide assurance to buyers that they wouldn't be left in the lurch
if their builder disappeared or did a rotten job," Hall said, adding that
10year insurance against major structural defects did not appear until 1965.
"Even then, it was not intended to deal with any perceived consumer problem.
Its intent was simply to give new homes a competitive edge vis a vis existing
homes It succeeded very well," he said.
Hall said the combination of insurance with sound basic standards and the
inspection of every home during construction ensured that by the mid l980s,new
home commanded a considerable premium.
"The original purpose to create a level playing field for all builders and
to ensure that new homes were considered by buyer to be at least as attractive
as existing homes, had been achieved magnificently," he added.
Canadian National Warrant Council chairman Keith Hanso said the council represented
seven distinct warranty companies each area.
He said in only one of these areas was builder enrolment in the, warranty
programme mandatory and enforced by legislation.
"In all other areas, builder participation in the warranty programme is voluntary.
Even though six of the seven programmes have voluntary membership, during
the last 20 years, the Canadian warranty programmes have registered about
80 per cent of all eligible homes," Hanson said.
He said warranty programmes in Canada were a contract between the builder
and consumer and had the full and sole obligation to administer the terms
of warranty and pay valid claims throughout the warranty period.
Coverage,fees and builder responsibilities vary between programmes. However,
in general, Canadian warranty programmes provide protection for consumer deposits,
coverage for construction deficiencies after completion of the house off site
living allowances structural warranty for up to 10 years and conciliation
or arbitration services.
"While warranty companies guarantee warranty coverage to consumers, the degree
to which builders are responsible to the warranty company varies among the
seven Canadian programmed," Hanson said.
"In some programmes, builders are financially liable for every house they
build for the entire warranty period. Claims must be paid by the builder or
if in default, from security posted with the warranty programme. Only after
the builder and the posted security is exhausted does the warranty programme
become financially responsible," he added.
Hanson said that in other programmes, builders were fully responsible for
warranty claims during the first year after which the warranty programme assumed
full responsibility for the balance of the warranty term.
In all cases, the degree of liability assumed by the warranty programme and
the builder is determine by the board of directors which is composed of new
home builders.
The long term success of the Canadian warranty programme Hanson said, could
be attributed to the fact that they were builder governed.
The boards of directors of the seven programmes are controlled by new home
builders who volunteer their time to watch over the operations of the programmes
and set up policies that keep the warranty programmes in touch with the market
place and its customers.
"With full time top ranking professional management, the volunteer boards
have built their not for profit warranty companies in substantial businesses
with significant financial reserves and aggressive business plans," Hanson
said.
He said the Canadian National Warranty Council had enjoyed a position of monopoly
in the supply of new home warranty for 20 years.
"However, competing warrant companies have entered recently and have been
endorsed by Canada's two mortgage insurance companies. These new warrant providers
have acquired less than one per cent of the marketplace and are providing
insurance only Hanson said.
"So far they have not showed any sign of participation in builder development
or industry advancement. This may soon change an the face of the Canadian
new home warranty system
will forever change as well."
Vancouver's New Home Warranty of British Columbia Inc president and chief
executive officer David C. Verge told the conference that warranty was marked
drive in British Columbia.
"We have competition. However 70 per cent of gross housing star are underwritten
by New Home Warranty," he said.
New Home Warranty is a private company the shares of which held by the Canadian
Home Builders Association of British Columbia.
HomeBond's Ireland technical services head Eugene Farrell said that last year,
the national house building guarantee scheme changed its name to HomeBon The
scheme was set up in 1978 with the assistance of the construction Industry
Federation, Irish Home Builders Association and the Department of Environment.
Farrell said that since last year, major defect cover was change from six
years to 10 years cover with a limit of two years on smoke and water penetration. |
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